Assume that investment spending is no longer affected by output but only by interest rates. Given this information, a reduction in government spending: will have no effect on investment. will cause investment to decrease. will cause a reduction in output and have no effect on the interest rate. none of these answers. will have no effect on output.
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- If the average marginal propensity to consume is 0.8, then a $10 million increase in total income will lead to a increase in consumption. $80 million $0.8 million $8 million $2 millionIn the economy of Keynesian Island, autonomous consumption expenditure is $50 million, and the marginal propensity to consume is 0.8. Investment is $160 million, government expenditure is $190 million, and net taxes are $250 million. Investment, government purchases, and taxes are constant—they do not vary with income. The island does not trade with the rest of the world. If the government increases its purchases by $200 million, what will be the change in the economy's equilibrium real GDP? Show the change on the graph as well.If the marginal propensity to consume is 0.75. When the world gets into a recession period, country X's net exports fall by $2 billion, the government can offset the effect on output if government purchases G will rise by(?)
- Which of the following will increase consumption spending? Group of answer choices a housing market crash an increase in the personal income tax rate a boom in the stock market an increase in the nominal interest rateFind equilibrium output when the following apply: Autonomous consumption = $1,000 Marginal propensity to consume = 0.75 Taxes = $800 Transfers = $300 Planned investment = $800 Government purchases = $500 Net exports = $0. a)$7,700 b)$1,925 c)$2,566.7 d)$1,800 e)$7,200It is assumed that everything else stays constant. The economy has Consumption $90, Investment spending $100, Government expenditure on goods and services $80, Tax revenues $50, Exports $50, Imports $60. And marginal propensity to consume is assumed to be 0.7. When the potential output of the economy (or long run output) is $250, what should be government spending in order to close an output gap?
- Suppose governments increase spending for Social Security pensions. Explain why the increased government spending for pensions will not appreciably increase government purchases of productive resources or the products of business firms.The potential GDP of the country is 380 billion euros, and the actual is 240. The marginal propensity to consume is 0.8. Determine the change in government expenditures to get to the equilibrium point:Suppose that planned investment and planned government purchases do not depend on income: | = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12. Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation? the (Y, AE) point is above the 45 degree line, Y will adjust down the (Y, AE) point is above the 45 degree line, Y will adjust up the (Y, AE) point is below the 45 degree line, Y will adjust down the (Y, AE) point is below the 45 degree line, Y will adjust up
- The marginal propensity to consume out of permanent income equals 0.9 and the marginal propensity to consume out of transitory income equals 0.1. Suppose that there is an emergency increase in government spending of $200 billion to repair infrastructure. The spending takes place within a year. The spending increase is financed by a one-time increase in taxes. Prior to the increase in government spending, permanent income equals $9,600 billion and transitory income equals zero. (a) Compute the amounts of consumption expenditures and private saving prior to the tax increase. (b) Compute the amount of changes in consumption expenditures and private saving, given that the tax increase lasts for only one year. (c) Compute the initial change in aggregate demand that results from this combination of increases in government spending and taxes.If consumption is $6 billion when disposable income is $0, and if the marginal propensity to save is ds = 0.7 + e-1.5y dy (in billions of dollars) find the national consumption function. C(y) =If income level of the economy is at 50, how big an increase in autonomous expenditures is necessary to move the economy to equilibrium? a) 20 b) 50 c) 75 d) 100 e) None of the above